Effects allow you to highlight specific parts of a model. You can highlight parts, give them x-ray effects, and turn them solid colors. These settings are found in the Home tab of the Ribbon, but you can also access them through the properties tab.
Effect Color determines what colour effects on the current object will be. If you want an in depth look on how all the color settings work go to the Effects documentation
The X-Ray Effect (Hotkey: X) turns the selected object semi transparant and colored the same as the Effect Color.
The Color Effect (Hotkey: C) colors the selected object the same as the Effect Color.
The Remove Effects button removes all effects currently on the selected object.
For more in depth information see here.
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